CBI says public sector spending should be open to private firms

Employers' body report claims government could save £22.6bn if public services were open to competition

John Cridland, director general of the CBI, claimed the public supported the idea of more competition when it came to public sector spending. Photograph: Linda Nylind for the Guardian Linda Nylind/Guardian

More than a third of all public sector spending should be thrown open to competition from private companies, social enterprises and charities, Britain's leading business organisation claimed on Monday in a move it claims would save billions of pounds a year.

Publishing its most comprehensive report on the subject, the CBI said its research suggested public services worth £278bn would benefit from being opened to competition, saving the government £22.6bn a year. Total public spending this year by central government and local authorities is projected to be £676.6bn and the employers' body argued that any cuts would help balance the budget by the end of 2016-17.

Among the areas the CBI suggests could be opened up most rapidly are management of social housing, school meals and prison management – provoking a furious response from Dave Prentis, general secretary of the trade union Unison, who accused the CBI of plucking figures from the air.

John Cridland, director general of the CBI, blamed inertia for the lack of progress in opening public services to competition and insisted the public was supportive of the idea. A ComRes poll for the CBI found 75% agreed that a variety of providers would be more successful than a single company in running public services.

"If you look at what government says about public service reform and what the CBI would want to see done on public service reform, there's a very significant overlap. It's momentum we say is lacking," Cridland said.

"After the public service white paper we have seen some action in some parts of government, but we're not seeing enough progress across government in enough of the areas to continue to improve quality and value … The government could be bolder; we think the public would have no problem with the coalition of the willing to provide this role."

He pointed to the Ministry of Justice under Ken Clarke and the Department for Work and Pensions as having made progress but said that relatively "uncontroversial" areas such as back-office functions were still not open to competition in many departments.

The call for more private sector involvement following the botched handling of Olympics security by private company G4S and the problems of the Southern Cross care homes added to union criticism.

"All the evidence shows that privatisation is a costly failure that the taxpayer can ill afford. Only last week MPs felt it necessary to call for a blacklist of firms that have failed to deliver on their contracts," Prentis said.

"Privatisation failures carry heavy human costs – just ask an elderly resident of an ex-Southern Cross home. And, as the G4S Olympic fiasco clearly shows, when the private sector fails, the public sector has to pick up the pieces – including the cost," he added.

The CBI commissioned the consultancy Oxford Economics to look at 20 service areas. It found average cost savings of 11%, in a range of 10% to 20%, worth £2bn. Extrapolating this to the £278bn of public services that the CBI believes could be opened to the private sector, the CBI produced the figure of £22.6bn of savings.

"Most public services are still largely state monopolised and it's time to open some of them to competition," Cridland said.

The research looked at areas such as social housing, 98% of which is managed by the public sector, prison management, which is 86% public sector-run, and school catering, which is 73% managed by the public sector.

Cridland acknowledged the CBI represented companies that could make money from taking on public services, but said the private sector did not want a race to the bottom on price, and would not benefit from simply cutting quality of services.

"For me this is all about quality," he added.

Ali Parsa, chief executive of Circle Healthcare, who sits on the CBI's public services strategy board, claimed private innovation had created a situation where cataract operations cost £2,000 in the US, £1,000 in Britain and £50 in southern India.

"This country has a problem [too much demand, too little money]," said Parsa. "I'm not interested in ideology, I'm interested in solving the problem. What I care about is my children, by the time they need the NHS, they can afford it; I care that my children to go a school that delivers the results some of our better schools do."